Difference Between Hard and Soft Credit Checks

Understanding your credit scores is really very important and can be frustrating at the same time. It plays a vital role in searching, finding and applying for a right loan plan and getting it at a right price. In fact, they even play an important role in getting your credit cards approved. Please take a note that there could be some errors on your credit report that would damage your credit score. Therefore, it is vital to understand how credit scores actually work and what hard and soft credit checks stands for and what are the differences between them.

Hard Credit inquiry

This kind of inquiry happens when a prospective lender checks your credit report before making a lending decision. Well, it is important for you to know that such inquires can lower your credit score and will stay on your report for two years.

Soft Credit inquiry

This kind of inquiry generally happens when a person or company checks your credit report just as a background check. In such inquiry it has been seen that when you have checked your own credit score and when a mortgage lender pre-approves your loan. Soft inquiry can occur without actually taking your permission, but there is nothing to worry at all as it won’t hurt your credit in any way.

Know when hard and soft credit checks occur

When a person is applying for a loan, credit card or mortgage is generally when hard inquiries will take place. On the other hand, soft inquiries generally occur when employers access your credit profile to look for signs of risks or when you check your own credit report from different websites. Lenders may sometime also use soft inquiries to pre-approve your loan. These soft inquiries are considered as "promotional" and won’t affect your score.

For checking your identity, banks would also perform either hard or soft credit inquiries. It will also happen when you apply to rent an apartment or to buy a car. For hard inquires, your permission would likely to be taken. For soft inquiries, no permission is required to be taken.

Know the effects of credit inquiries on credit score

You will be pleasant to know that soft inquiries won’t lower your score. However, hard inquiries could slightly lower your credit score. In hard inquiries factors like your payment history and credit utilization rate are usually weighted more heavily. However, the fact is that the impact of an inquiry can vary according to your credit history. If you have few accounts, a short credit history or a higher number of inquiries, an additional hard inquiry could have a greater impact on your score. Keep in mind that a lot of inquiries may make you appear like a higher-risk borrower or put an impact that you are always in constant need of credit, so it’s better to minimize them.

Tips to avoid hard inquiries

If you want to apply for a type of loans or a credit card, then it is hard to avoid subsequent hard inquiry. However, you can shop around for a better loan deal where lenders will combine multiple inquiries within a certain time period into just one. If you are going for a rate shop, then just make sure to work fast and stay consistent. It is best to keep checking your credit score and then apply for a loan that you are most likely to be qualify. This way you can can’t hard inquiries fully, but yes you can certainly decrease the number of them.

Avoiding hard inquiries that you didn’t approve of

If there is any hard inquiry that you did not approve of, then you should simply call or write to the creditor. Tell them clearly that you have not given permission for credit checking and ask them to remove it. If you find any sort of error in your credit report, then you can immediately get rid of it by disputing them directly with the credit bureaus. You would like to calculate your score as accurate as possible if you do not want to put your credit worthiness at stake. So, you must also ensure that the correct information is available on your credit report.

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